Building up a sufficiently large nest egg for retirement is becoming more and more challenging, which means many retirees will rely heavily on Social Security as a source of income. And while Social Security benefits were never intended to be sufficient as a retiree’s sole source of income, that doesn’t mean you can’t make the most of them.
One well-known way to increase your monthly payments is to delay claiming benefits — but it’s not the only way. There are also a few little-known options that could boost your checks by you more than you might think.
1. Move to a more tax-friendly state
Depending on where you live, your Social Security benefits could be subject to state income taxes. The good news is that only 12 states tax Social Security: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
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If you live in one of these states, relocating could save you money in state taxes. Of course, there are many factors to consider before you move, such as the overall cost of living in another state. But if you were already thinking about moving in retirement, choosing a tax-friendly state could result in you getting more out of your Social Security checks.
2. Invest in a Roth account
Regardless of where you live, your benefits may be subject to federal income taxes as well.
Your federal income taxes will be based on a figure called your “combined income,” which is your adjusted gross income plus half of your annual Social Security benefit amount. If your combined income is higher than $25,000 per year (or $32,000 per year for married couples), you’ll owe federal taxes on up to 85% of your benefits.
However, withdrawals from Roth accounts do not count toward your combined income. If you’re investing in a Roth IRA or a Roth 401(k), then, you could use those withdrawals strategically to keep your combined income lower, reducing the federal taxes you owe on your benefits.
3. Work a few more years
The Social Security Administration calculates your benefit amount by taking an average of your wages over the 35 highest-earning years of your career, then adjusting that number for inflation. The result is the amount you’ll receive if you file at your full retirement age (FRA).
If you haven’t worked a full 35 years by the time you file for benefits, you’ll have zeros included in your average, thus reducing your benefit amount. By working just a few more years, you can ensure you’re receiving as much as possible.
4. Take advantage of other Social Security benefits
Retirement benefits aren’t the only type of Social Security benefits you may be entitled to. Depending on your situation, you could also qualify for spousal, divorce, or survivors benefits.
Spousal benefits are sometimes available to those who are married to someone entitled to Social Security benefits. To qualify for divorce benefits, you cannot currently be married, your previous marriage must have lasted for at least 10 years, and your ex-spouse must be eligible for Social Security.
In both cases, the most you can receive monthly is 50% of the amount your spouse or ex-spouse is entitled to receive at his or her FRA.
Survivors benefits are generally for widows and widowers, but sometimes, parents, children, divorced spouses, and other family members who were financially dependent on a person who passed away will qualify for them.
Social Security benefits can be an important source of income in retirement, and you could be eligible for more than you think. By taking steps to maximize your monthly checks, you can head into your senior years as prepared as possible.
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